Thrift Week — The Paradox of Thrift

In this book, Weber addresses the “Paradox of Thrift,” which she describes as:

“This idea — that higher savings lowers the economy’s total output (and thus that thrift is a private virtue but a public vice.)”

The idea that savings are bad for the economy, until the government decides that savings are patriotic. The U.S. government has flip-flopped on this issue enough times throughout our history to make thrift and savings confusing to say the least.

I have come to a personal decision that I have a responsibility to my family’s financial well being that trumps whatever government message is currently in vogue. If my country’s economy can only be healthy through me living beyond my means, then I have zero responsibility to support it.

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So true!
I’m on a year long non-shopping kick, and I sometimes worry that I’m not contributing to the economy by saving my money.
But ultimately, I’m only one person and I’m still paying taxes, plus I believe the value to my family, personal financial situation and the environment trumps any government messages.

Personally, I’m sort of loathe to take financial advice from a government that is in dreadful financial straits. After all, I wouldn’t take parenting advice from someone whose kids were living terrors, and I wouldn’t take cleaning advice from someone whose home is a disaster. I don’t think the government knows what it is talking about, at least in this case. 😉

Your post reflects something I have thought about for the last year. It is most curious, especially after years of being chastise by “them” of having such a low savings rate. And I agree, it just doesn’t make sense. Like Kristen, I don’t think I can support practices that are not sustainable. On some level, I think we are experiencing some adjustment to unsustainable practices now. I am not sure I want to live in a society that is based only on buying. But I definitely have mixed feelings – I guess about an unknown of what that might look like. Plus, there are somethings I do buy – material for quilts, yarn locally, produce locally. Would this be enough to sustain a community? I think there needs to be a certain amount of commerce to have a community.

It’s ironic that “buying local” and supporting the “little guys” feels right and gives us pride in supporting the local economy. It could be the same purchases that we’re making, but being told that we need to shop and spend our way to national economic stability feels wrong.

Right after 9-11 when then President Bush urged Americans to be patriotic â€” and shop â€” I was both aghast and amused at such a shallow (and ridiculous) suggestion. Shopping to show my patriotism? I’m sorry â€” what’s that you say? But then to my amazement, many took him at his word and gladly hit the malls in their overriding “patriotic enthusiasm”. To me, there seemed to be an enormous disconnect between the seriousness of bombing the Twin Towers and whether I bought a new frock at Macy’s.

I, also, just read “In Cheap We Trust”. I was impressed with the history of our government’s stand on its citizen’s personal finances, as you say, flip-flopping from one stance to another with astonishing rapidity. I was also impressed with the interviews Lauren Weber conducted among those who are yet more frugal than I am. I think her book is destined to be a classic in frugal literature.

I’m conflicted about this issue because, living in Portland, I do feel a responsibility to the small business merchants and restaurants that contribute so much to our neighborhoods. I do feel somewhat obligated to support their businesses because they help make Portland so walkable and community oriented. On the other hand, I’m much more interested in saving money, eliminating spending, and looking for alternatives to buying new. I’m still looking for the right balance. That said, I’ve never felt obligated to shop big box stores in the burbs or buy a new car every five years. I’m not sure why small merchants are so very different in my mind, but that’s where I’m at right now.

I know exactly what you’re talking about. And while I can’t choose to buy my groceries at “New Season’s Market” (VERY expensive , local and wonderful store) I can choose a locally owned restaurant or movie theater.

I do not feel a responsibility to support any business, local or otherwise that would derail my financial well being.

This is huge for me when I’m dealing with local businesses. I’m happy to pay a small premium for an actual added value. For instance, on the rare occasion that I buy a new book I get it from my neighborhood book store. They have a cafe with free wireless and a story hour for kids, so I get a lot of value from their business that Amazon could never give me. It’s worth it to pay full cover price and do my part to keep their doors open.

BUT. There are also local businesses who are not competitive in their pricing at all. I can’t and won’t pay a ‘yuppie tax’ on goods just because buying local is in vogue. An example here is eggs. I can buy organic free range eggs from Whole Foods for under $4 a dozen. I can buy them from two different local farms I deal with directly for a little over $3. But the large regional farm that delivers our wonderful organic CSA charges $5 a dozen. Why? Because their well-off urban customers don’t know what farm eggs are worth and will pay any price that’s named for the thrill of buying their food from a farmer.

This makes me mad not only because its expensive but because when the local food fad dies out, businesses that were built on unfair prices will collapse. I want to see my local farms thriving sustainably, and that means they have to be priced competitively.

When I’m searching for a particular book to buy, I hit my favorite used book stores. If I can’t find it used there, I head to our locally owned, independent book dealer. The owner of the store is very active in the community. The upstairs meeting area is often booked, but she makes room for non-profits as well. Two of the groups (of a social nature) I’m involved with use the room for free or for the cost of donations (whatever that may be).

Another local store offered up their meeting space for discussion groups and classes at little or no cost. You can bet that my spending dollars go to these stores first. I always try to find what I need at their stores before going elsewhere, including online. When I need something, I would much rather turn over my cash to people that I know and that are making a difference in the community.

Everybody’s heard the old saying that charity begins at home. I think that it’s important to remember WHOSE home it starts at. We have to put our own and our family’s well being first. If it benefits the local economy as a side effect, so much the better.

Good to hear. He’s a somewhat friend of mine, and when he posted that cartoon on his Facebook page, I knew I had to share it on The Non-Consumer Advocate. It’s good to have talented friends. (Somewhat.)

The US economy obviously has major problems, and one of the biggest is that it’s 70% based on consumption of goods. I don’t know any easy way to undo that, but I do know that more and more people have little choice but to avoid buying, buy second-hand or create at home. That’s a very bad combination in terms of economic recovery.

I think our nation is only as financially strong as every individual within it. On the one hand, I believe in capitalism when it is at its best: innovative, finding technologies that people can use and solving problems that affect us, at a fair price to the consumer and a fair profit to the company or individual providing the good or service. On the other hand, at its worst it just functions on selling us stuff we don’t need, produced by people a world away in lousy working conditions, and making stupid big profits for a few at the top. To me that is lazy industry and I don’t want to support it. Buying stuff we don’t need will never lead us to prosperity, especially if we find ourselves borrowing to do so.

I didn’t know where else to post this since the e-mail I receive comes back as “inactive” when I try to write there. For some reason, I no longer have a “comments” section at the end of the e-mails I receive. I finally found I had to click on the link at the bottom of the e-mail in the area where you also unsubscribe. Is this a problem on your end or mine?

I too am almost finished with In Cheap We Trust, and I have to say it’s well written and has something new to say–that many of the myths we were raised on are just that, myths, starting out with straightforwardly thrifty Puritans–not! I love how Weber addresses the cyclical nature of both our economy’s booms and busts, and our response to same: save, don’t save, save, don’t save. And how a government’s agenda rarely prioritizes what private citizens care about.

Re the government setting our standards, how laughable. Those who followed Bush’s advice to shop obviously had no clue as to what was going on, and likely did not care to find out how shopping would help. Caring would require some knowledge of terrorism politics, and a real stake in the so-called War on Terror. How many Americans actually have a relationship to this war–outside military families, for whom the war is all too real. But yeah, shopping does sound easier and more satisfying than really delving into the bigger picture. In reality, we all need to set our own policies about spending and saving.
Weber’s book is a much needed wake up call.

I agree with all the posters who mention that they won’t take financial advice from governments who have so deeply mismanaged public finances. I’m Canadian, and so far, we have not been as severly affected by the global recession as the US, mostly due to our banking policies, but my country has been financing public services by digging us collectively further and further into debt for the past 30 years. No political party has had the courage to face up to the situation, and I think this is the case for most first world countries. Everyone has been counting on evergrowing, everlasting economic growth to reimburse public debt and to finance the public services of the future. Citizens bought into this as well, by using their home equity as a source of funds. I don’t think the global recession is about to abate: First world countries won’t be able to fund stimulus packages forever in order to stimulate the economy and emerging economies (BRIC = Brazil, Russia, India and China) aren’t quite ready yet to jump on the comsumerism bandwagon to keep it purring along. Most consumer goods cost a lot less today than when they became available in the 40’s, 50’s, 60’s and 70’s because they are produced cheaply in emerging countries. How can outsourcing the production of most of our consumer goods elsewhere not come back and bite us in the tush? Where have those factory workers gone to work? At Walmart, being employed part-time without any benefits, which I understand is their policy for part-time staff? I think the future economy will be regional and local, and we will have to get used to paying a fair price for products produced regionally by workers earning a decent wage. This topic gets my blood boiling!

Seirra Black: Have you considered that the CSA people charge extra for the eggs to factor in the delivery service they provide?

I choose not to take financial advice from people who are in debt(if you count in unfunded mandates) 😉 lol

I don’t know that there is one true answer that will work, but the one I think is the *closest* the the right answer is to buy local.

I try and support my local community first in most things(there are areas I do not because I cannot financially), then my region(my area of western ND, and eastern MT), then my state, THEN, other places.

If my community stays healthy(and I mean I will support business in my community that keep jobs and money here, be it a nationwide chain or a local mom and pop), then that will bleed over to my county and then my region and then my state, and then will spill over to other states, etc.

It’s true that if US’ans suddenly spent 75% less than we do now, bad things would happen to the economy. One of the reasons that the Great Depresssion was “great” is that people stopped spending money, which meant that people had a hard time earning money.

But it’s not all or nothing! Our choices aren’t spending almost nothing or spending more than we have. Spending more than we have is not sustainable. Duh. Doing something unsustainable is *really* bad for the economy – not today and maybe not tomorrow, but in the end Bad Things happen.

Additionally, savings are necessary for investment because where do companies and entrepreneurs get the money to do something new? They borrow it. (It’s not practical for a company to save enough to pay for an entire solar power get up with saved money or for someone to start a new happy-cow dairy farm from savings only. If you don’t agree,… um, skip the rest of my comment.)

To date US companies have, in effect, been borrowing money from other nations that save a lot. Those who haven’t borrowed directly have benefited from the lower interest rates that the international resources created. One problem is that as the people of those countries (such as China) begin to buy more for themselves (fridges, cars, private education, health care, etc) that source of funds will get smaller. US’ans will have to pay more to borrow. Or we’ll have to find another pot of saved money to borrow.

That’s where we, those inclined to be thrifty, come it. It’s our savings that the would-be dairy farmer will borrow against. He’ll hire people to work for him, and make profits himself, and save it or invest in another business; and round and round it goes.

So save your pennies and save the economy.

Note: I’m trained in economics but I’m not the best at explaining it. For an easy to follow explanation of how savings fuel a community, watch the bank run scene in “It’s a Wonderful Life,” where Jimmy Stewart is convincing his bank customers not to withdraw all their cash from the Building and Loan.

William, I love that scene in “It’s A Wonderful Life,” because it explains economic community investment perfectly!

This topic brought to mind a recent study from the Pew Charitable Trusts on savings and economic mobility. Here’s what part of the summary states:

“This paper clearly demonstrates the relationship between savings and economic mobility.
Using data from the Panel Study of Income Dynamics (PSID), the paper first explores whether having parents with high savings (i.e., above median savings) or having high savings oneself, improves oneâ€™s chances of making the climb up the income ladder,
or prevents one from falling down it. Second, it examines federal incentives and disincentives to savings in the federal tax code and public assistance programs. And third, consistent with the projectâ€™s recently released nonpartisan policy road map to enhance mobility, it makes recommendations on ways public policy can be improved to encourage savings, especially among low- and moderate-income families.â€

As In Cheap We Trust makes sadly clear, historically it is only in the build up to war that our government has encouraged people to save–in order to wage war with that money. What a wonderful thing if we could purchase “non-war” bonds instead.

Economics is pretty complicated in its effects, and often even the experts are wrong (see Greenspan’s predictions 10 years back). It may be that saving AND intelligent buying could save our economy. It’s going to be a balancing act to buy American-made durable goods when needed, so that more people are not thrown out of work. This will mean buying more expensive products for sure. It will also require investment in new business, as William B says. Small businesses rate as some of the best employers right now.